Opinion: The most important new thing about Apple is not the iPhone X

Apple’s new iPhone X is a home run, but everybody already knows that. So that doesn’t provide investors an edge.

Savvy investors are always looking for an edge to outperform the broader market. You can gain an edge in information that is not well-known or well-understood. In this article, I am going to discuss two edges in Apple
AAPL, -0.45%
stock. One edge could be gleaned from the company’s earnings report. The second comes from money flows.

Let’s start by exploring a chart of money flows and then move on to the biggest new thing.

Chart

Please click here for a chart of money flows. At The Arora Report we gain an edge by breaking down money flows into three categories: smart money, the momo (momentum) crowd and short squeeze. Money flows have helped The Arora Report continue to hold a core position in Apple stock originally bought at $18.73. We have doubled the returns for our subscribers by trading around the core position with almost perfectly timed entries and exits over the years. This record is publicly well-documented over the years.

For those holding FAANG stocks or those in the process of deciding which FAANG stock to buy, the chart also ranks them based on the ZYX Change Method. The ZYX Change Method has six screens. The premise behind the method is that the most money with the lowest risk is made by identifying change ahead of the crowd.

From Apple’s earnings report, the biggest new thing is not the iPhone X, but its service revenues.

To understand why service revenues are so important, let’s compare price-to-earnings (P/E) ratios of Apple’s stock to Google’s stock. Apple stock trades at a trailing P/E of 19.09 and forward P/E of 15.50. Google stock trades at a trailing P/E of 37.80 and a forward P/E of 25.20.

Imagine where Apple stock could trade if it received the same P/E as Google stock! Apple’s stock could double by this measure; please keep in mind that this is hypothetical and not likely to happen in reality. The reason Apple stock trades at a discount to Google stock is because Apple is primarily in the hardware business and Google is primarily in the services business. Traditionally, revenues from services are more sustainable.

Apple’s latest earnings report shows that its service revenues grew 34% year over year and 17% quarter over quarter to $8.50 billion. Apple’s total revenue was $52.6 billion. I have long stated that once Apple’s service revenues start exceeding over 20% of its total revenues, it may start getting a relatively higher P/E. The numbers from the latest report tell us that Apple is getting close.

Back in September when the market was panicking over iPhone sales and the stock was dipping to under $150, I made a timely call that Apple was heading toward $200. That call came right after another accurate call on the day of the iPhone introduction that Apple stock would temporarily dip.

Disclosure: Subscribers to The Arora Report may have positions in the securities mentioned in this article or may take positions at any time. All recommended positions are reviewed daily at The Arora Report.

Nigam Arora is an investor, engineer and nuclear physicist by background, has founded two Inc. 500 fastest-growing companies, is the developer of the adaptive ZYX Global Multi Asset Allocation Model and the ZYX Change Method to profit from change in trading and investing. He is the founder of The Arora Report, which publishes four newsletters. Nigam can be reached at Nigam@TheAroraReport.com.

Nigam
Arora

Nigam Arora is an engineer, nuclear physicist, author, and entrepreneur and the founder of two Inc. 500 fastest growing companies. He is also the developer of the ZYX Change Method to profit from change by investing. The premise is that most money is made by predicting change before the crowd. Arora is the chief investment officer at The Arora Report and the editor of four newsletters that track the ZYX Change Method. Nigam can be reached at Nigam@TheAroraReport.com

Nigam
Arora

Nigam Arora is an engineer, nuclear physicist, author, and entrepreneur and the founder of two Inc. 500 fastest growing companies. He is also the developer of the ZYX Change Method to profit from change by investing. The premise is that most money is made by predicting change before the crowd. Arora is the chief investment officer at The Arora Report and the editor of four newsletters that track the ZYX Change Method. Nigam can be reached at Nigam@TheAroraReport.com

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